In order for me to answer this question, I have to first convey the importance of understanding the meaning of the word “Value”. If we were to look up the word in the dictionary, the word “value” is defined by its financial definition as the importance of a product or service has in relation to the money exchanged. From this we commonly tend to believe that the word “value” describIn order for me to answer this question, I have to first convey the importance of understanding the meaning of the word “Value”.es the relation between a product’s cost and the amount of value it provides. If this were correct, a person could expect to buy the best value car by finding a car that came standard with gold bumpers, a platinum engine block, and that ran on plutonium. Obviously, value cannot be determined by a product’s relationship with cost. Pearl necklaces, diamond rings and other luxury items seem to hold more value, however, if one were lost on a deserted island without food or water like Tom Hanks in “Castaway”, the value of these objects would diminish very quickly in favor of a Bic lighter and a good pair of ice skates. Value is environmental, and value is determined by how well the product or service addresses the functional need.

Therefore, when we talk about Earned Value we are not talking about the relationship of money burned for the effort worked, we are talking about the amount of money burned that directly contributed toward the functional value of the product or service. For instance, a brick has value to its use as a structural element of a wall. Many bricks (tasks) make up a wall (project/project activity) and each must be complete to provide effective structural support to the wall.

If within our process, to complete the wall we must first create the bricks, we need to know the functional value of the bricks we are creating in terms of their present value of completion, relative to cost and schedule. For a brick to be useful in our wall, it must be 100% complete to the specification set forth for each brick. Earned Value Management offers us status regarding delivery performance, variance, forecast budget, and completion estimates for a specific moment in the project life-cycle. These metrics help us better understand how our actions affect our performance as we build each brick, and help us understand how this effort supports the larger picture of what we are attempting to build, in this case, a wall. Earned Value helps us monitor the number of bricks used (Scope), the expenditure of equipment and raw materials used to make the bricks (cost), the duration of time it takes to build the wall (Schedule) while the wall is built to appropriate load bearing specifications (Quality).

Why is this important? - I know a story of a local politician (I won’t say who), that budgeted and assembled a task force of all his good friends who were put on the task of solving one of the city’s problems. For a month, they met, they dined, they expensed, and expensed. At the end of the month, they consumed $70,000 of the taxpayers money and accomplished absolutely nothing. As a taxpayer, I want to know that my tax dollars are used wisely, accomplish intended goals, and achieve intended functional purposes. This is why the United States federal government has begun to mandate the use of value management systems in their government contracts, to assure that the taxpayers dollars are being used wisely.

The reason why Earned Value is important could end there, however that would be too easy. Not all project managers know Earned Value Management and not all organizations understand why they need it to protect their projects. Some organizations seek out project managers like a hunter would seek out a game tracker, or how a detective would seek a clairvoyant, and tell the project manager that their primary responsibility is to manage the project by assuring that people are on task. Of course, before they are hired, past successes are counted, and afterward the hiring organization depends upon the project manager’s gut instincts to tell us if the Change Request that we would like to approve can be approved within the project budget. They then gaze into the crystal ball and read the tea leaves, “Boil, Boil, Toil and Trouble, we will deliver the project within budget if we incorporate the change.” They have a 50% chance of being correct. Either they will, or they won’t. Either way, by the end, they will be on to their next project.

If you hired a project manager to manage an addition to your house, and you had budgeted some extra cash to cover potential incidentals that might occur during the build, you certainly would like to get, if not demand, a straight answer when you ask whether the incidentals might break the budget when everything was complete.

Upon initial glance, based on use of Earned Value within the federal government, it can look no more important than a monthly audit system. However in the project environment, even Earned Value, has specific functional value depending on who you are.

Customer Viewpoint - “I receive high level metric-based visibility through EVM Reporting on a monthly basis to assure that my contractor is performing, and is fulfilling the value of the product or service for which they are paid, in support of the program for which I am accountable.”

Executive Leadership Viewpoint – “I require high level metric-based visibility of project performance to assure the effectiveness of my project manager, and that the contract for which my organization is accountable is running smoothly, is healthy, and that we profit by supporting our customer effectively in accordance with plan.”

Project Manager Viewpoint – “I require immediate and detailed metric-based visibility into the dynamics of my project, how performance relates to project cost and schedule, how I may best leverage the resources at hand to sufficiently support task execution, issue resolution and risk mitigation. These metrics offer me the metric-based information that I need to rapidly correct or tweak the project environment for which I am accountable.”

Of these three viewpoints all are equally important, however only the Project Management Viewpoint has the means to instantly affect the project and use Earned Value Management as a tool, rather than as an audit system. This is because the project manager, with current trending information, has the ability to determine and correct negative influences within the project. The Customer and Executive Leadership usually do not see Earned Value information related to these negative trends for up to two weeks to a month after they have occurred.

Earned Value Management is the crystal ball that enables a project manager to be the first line of defense, able to forecast, trend performance, identify and fix project problems, and most important take action to affect the outcome. Earned Value is meant to assure that budget consumed is best used to advance the project’s functional value. By orienting an Earned Value Management System to FIRST support the data frequency and data granularity required by the project manager to produce and react to current EVM information. From this standpoint, the manager is in a better position to correct and communicate better metrics upstream to executives and the customer. Without introduction of this very important aspect of how Earned Value Management should be executed, a project manager can only be held accountable for negative project performance, without the ability to influence their project environment to a better result.